Renting to family

I am looking at going overseas for about a year and am looking at renting out my unit to my sister-in-law while away - hence avoiding agents fees etc. What do I need to do to ensure that I can claim expenses incurred (strata fees, council rates and water) against it as a IP? There is no interest expenses for the propery (although there is borrowed money for shares that is secured against property).

Are there any complications if we leave some stuff in the apartment and charge lower rent as we would effectively be using one room for storage?

You should make sure you are charging market rent - otherwise the ATO may only allow a pro-rata claim of expenses.

The ATO's rental property guide has some examples you should read (page 7 and 8)

Mr and Mrs Hitchman were charging their previous Queensland tenants the normal commercial rate of rent – $180 per week. They allowed their son, Tim, to live in the property at a nominal rent of $40 per week. Tim lived in the property for four weeks. When he moved out, the Hitchmans advertised for tenants.

Although Tim was paying rent to the Hitchmans, the arrangement was not based on normal commercial rates. As a result, the Hitchmans cannot claim a deduction for the total rental property expenses for the period Tim was living in the property. Generally, a deduction can be claimed for rental property expenses up to the amount of rental income received from this type of non-commercial arrangement. Assuming that during the four weeks of Tim’s residence the Hitchmans incurred rental expenses of more than
$160, these deductions would be limited to $160 in total – that is, $40 ✕ 4 weeks.
If Tim had been living in the house rent free, the Hitchmans would not have been able to claim any deductions for the time he was living in the property.

Rule no. 1: Never ever invest or get financially involved with family or friends.
Rule no. 2: When in doubt, see Rule no. 1.

Mark

'If you're going through hell, keep going’ - Winston Churchill

'Success is not about brilliance. Success is about perseverance. Hanging in there is of far more importance than any other single factor.' - Kristine

This is a general comment only and does not constitute advice. Before making legal or financial decisions you should seek advice from a professional adviser, who can take into account your specific circumstances and investment goals.